- British Pound to Euro exchange rate today: 1 GBP = 1.1008 EUR
- Euro to Pound Sterling exchange rate today: 1 EUR = 0.9081 GBP
Above: How will Sterling react to overtures made by Brexiteer Liam Fox regarding the need for a transition period following the triggering of Brexit in March 2019?
The British Pound is in an established downtrend against the Euro which appears so entrenched our studies suggest continuation is likely.
Our short-term technical studies are done ahead of the start of every new week and we analyse the market utilising charts as they tend to give strong clues on future direction. Note that these views stand alone from our reporting of the views of other technical analysts and quantitative analysts at large institutions.
This week we note the exchange rate has pierced below the key psychologically significant 1.1000 level reaching a new low on Friday at 1.0963.
At the start of the new week, Sterling has found some relief and recovered some of these losses.
But any rebreak below these lows would confirm a continuation down to the next target at 1.0915, just above the S2 monthly pivot, at 1.0911.
Monthly pivots are robust support levels where prices normally stall or bounce as traders often use them as places to trade against the dominant trend, which in this case is down.
A further break below 1.0875, however, would probably indicate a brake below the monthly pivot, and open the way to further downside.
Momentum is not very bearish as it is barely at the same low levels as it was in June when the exchange rate was much higher, and this ‘convergence’ represents an underlying lack of downside momentum.
Politics: Good News on the Brexit Front
The headlines concerning the all-important issue of Brexit are good.
Over the weekend we got news that the UK cabinet might be settling into a unified position on the way forward regarding Brexit.
Cabinet heavy-weights Philip Hammond and Liam Fox have come together to declare the UK will leave the single market and customs union when Brexit happens in March 2019. However, both agree that a transitional period is required to ensure disruption to business and citizens is minimised.
The Pound has struggled of late with markets and businesses looking at splits within the UK's leadership as to how to proceed with Brexit. The lack of unity has had many analysts concerned that a disruptive Brexit might occur - which is seen by many as a worst-case scenario for Sterling.
In an article written for the Telegraph, the ministers - representing the Remain and Leave wings of the Tory party - say this will be "time limited" and designed to avoid a "cliff edge" that could damage British business.
This is good news for the Pound as it suggests the UK might be getting into a position that will allow for meaningful progress in negotiations.
(However, those on the Remain side of the argument are arguing Hammond has yielded to his opponents in the debate).
Monday's intitial trade has however not reflected the good news and we expect markets are likely to remain focussed on the substance of Brexit negotiations and will want to see real evidence of progress.
Brexit negotiations are due to commence once more at the end of August.
Ahead of the next round of talks, the UK is said to be looking to regain momentum by publishing outlines of its negotiating positions.
The government plans to issue three discussion papers ahead of the next round of discussions, scheduled to start Aug. 28 in Brussels, Brexit Secretary David Davis’s office said in a statement on Sunday.
The documents - setting out proposals for Northern Ireland and the border with Ireland, continuity on the availability of goods, and confidentiality and access to official documents after Brexit - will seek to prove the UK is ready for talks to advance to the next stage, according to the statement.
Keep an eye on political developments as they should be key to Sterling's direction over the remainder of the year and will arguably hold more influence than the data.
“The correlation between GBP and UK data surprises remains weak,” argues Kamal Sharma, FX Strategist at Bank of America Merrill Lynch. “Politics, more than data, matter for GBP and with a heavy Brexit calendar through to year-end we take this opportunity to establish a GBP short.”
Sharma believes markets are unprepared for upcoming Brexit-related risks.
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Data: A Big Week for the Pound
Tuesday’s CPI and Wednesday's wage data releases form the main event in the coming week for Sterling.
Inflation is expected to show a 2.7% rise in July, from 2.6% previously, when it is released at 9.30 on Tuesday.
Producer Prices which are also expected to be released at the same time are forecast to show a rise of 0.5% in July - for input prices, which measures the cost of materials used in production, rather than the wholesale price of the finished article.
Both headline and core inflation (core measures inflation with volatile food and energy prices removed) have risen since the pound fell sharply after the referendum last year.
Core is forecast to come out at 2.5% from 2.4% previously, compared to a year ago.
Employment data, including the Unemployment rate and Average Earnings are scheduled for release on Wednesday at 9.30 BST.
Unemployment is forecast to remain at 4.5% and earnings plus bonus to show a 1.8% rise, year-on-year.
“Earnings growth slowed to the lowest seen since late-2014 in May, falling further behind inflation. Recent recruitment survey data, however, has shown a combination of demand for staff and deteriorating candidate available leading to stronger pay growth.
“Overall price pressures also picked up in July alongside an increase in the rate of job creation, according to the latest PMI data,” said Bernard Aw, chief economist at Markit IHS.
Thursday August 17 sees the release of Retail Sales, which is forecast to rise by 2.9% in July compared to July in 2016.
The market will be expecting Retail Sales to be weak, so a strong result will be a surprise and probably provide a catalyst for a recovery in Sterling.
Data for the Euro
The week’s data for the Euro kicks off with the release of the ZEW economic sentiment gauge on Tuesday at 10.00 BST.
ZEW is calculated using survey data from interviews with 350 financial professionals and reflects their view of the economy, it is a reliable forward indicator for the economy.
Wednesday’s Euro-area GDP data is the second estimate and is forecast to reiterate the preliminary result which showed a very positive 2.1% year-on-year (yoy) growth rate in the second quarter and 0.6% quarter-on-quarter (qoq).
Thursday, August 17, sees the release of Eurozone Inflation data in July.
It is forecast to show a rise of 1.3% yoy but a -0.5% month-on-month (mom).
Inflation impacts on European Central Bank (ECB) decision-making and a weaker-than-expected inflation print could see the ECB keep its policy statement unchanged in the future.
Also on Thursday, the ECB will publish the minutes from its July rate meeting, which will be scrutinized for whether the ECB is closer to winding down its ultra-accommodative stance on monetary policy.
The more likely it is the ECB will start to reduce stimulus the more the Euro is likely to rise, because stimulus has a dampening effect on the currency.
A Rush to the Continent
The value of the Pound certainly matters for those looking to emigrate to Europe.
According to reports, British pensioners and people taking early retirement are flocking to settle in European countries ahead of Brexit, amid fears this will become more difficult once freedom of movement ends.
With the clock ticking on the UK’s departure from the European Union, a company that helps those making the move to the continent said the number of enquiries it was handling each month about relocating to Spain, France and Portugal had doubled.
Blevins Franks, which offers financial advice for those moving to Europe, said it had seen overall business surge by 20 to 25 per cent following the referendum result last year:
“The feeling we are getting from our clients is that it is better to be in the country before Brexit than looking to do this after."
But John Springfield, a migration expert and director of research at the Centre for European Reform, cautioned that:
"the golden age of British retirees heading to the costas is probably over.
“The thing about retirees is they are expensive. There is no way Spain would allow lots of Brits to retire there and use their health system unless young Spanish people could come and work in the UK.
“If we don’t have free movement, it is very unlikely we would have retirement rights.”